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Quotidian Investments Monthly Commentary – September 2021

October 4, 2021

The tone of this month’s report has changed from one extreme to the other in just the last three stock-market trading days of September. From a position of being nicely in profit on the 27th of the month, three successive days of extreme negativity (particularly in the Nasdaq index) saw equity prices substantially and unnecessarily marked down. As ever, though, on the final day of the month we are obliged to value on a mark-to-market basis.

On 30th September 2021 the FTSE100 index closed the month at 7086.42 (a fall of -0.47% in the month of September itself) and it now stands at up 9.69% for the 2021 calendar year to date. By comparison the Quotidian Fund’s valuation at the 30th September shows a fall of -4.98% for the month and so the Fund is now up 9.84% to this same date.

Yet again these price reductions in such a short space of time are unjustified from an economic perspective and are more related to the political opinions of two key figures in US financial policy making.

As we stated in last month’s report, much of the volatility in equity markets throughout this year can be ascribed to confected ‘concerns’ expressed by analysts and market-makers in relation to the potential for upward spikes in future inflation (largely in their attempts to justify the irrational marking-down of equity prices) and they reflect ongoing differences of opinion between Jerome Powell (chairman of the Federal Reserve) and Janet Yellen (who was his immediate predecessor at the Federal Reserve and is now the Secretary of the Treasury in Biden’s government).

These disagreements can best be illustrated by comparing the political beliefs of the two individuals concerned. Yellen was originally appointed to the Federal Reserve board by Bill Clinton and then raised to chairman by Obama (so is, broadly, left wing). She was dismissed as chairman of the Fed by Trump who then replaced her with Powell (conservative).

On a multiplicity of occasions throughout this year Jerome Powell has stated that “if sustained higher inflation were to become a serious concern then the Federal Reserve Open Market Committee (FOMC) would certainly respond and use all its monetary tools to assure that inflation runs at levels that are consistent with our goal”.

Despite this clear assurance market makers have continued to blame “inflationary concerns” as a limp pretext to manipulate equity prices and this same tired attempt at justification has been trotted out again this week. It simply does not stand up to scrutiny.

The initial ‘explanation’ offered on 27th September to vindicate a 4% mark-down in the Nasdaq index was that the yield on US 10-year Treasury Bonds had spiked from its opening level on that day of 1.484% to a figure of 1.551%. Seemingly these ‘experts’ consider that a yield figure of 1.50% is a tipping point and any higher yield figure is deemed to be a negative indicator for shares.

Strangely, on 31st March the yield on 10-year Treasuries had spiked to 1.763% but, stranger still, the Nasdaq index resembled a mill pond and equity prices remained unmoved. Obviously, we mere investors are not expected to have memories, employ logic or use the power of thought.

At the same time as market-makers were citing concerns over “surging inflation” the Bank of England stated confidently that any spike in inflation would be “transitory”.

We therefore see this severe mark-down as an injection of fear in the hope of dislodging unsteady or unwary investors (just before what is expected to be an impressive third-quarter results season). Yields on Treasury Bonds are dynamic and ever variable and, no doubt, before too long the 10-year yield will fall again below this apparently so vital 1.50% figure. We’ll see what happens then.

Never one to miss the opportunity to pour petrol onto an already excessive blaze, Janet Yellen (a woman unencumbered by modesty and never guilty of over-thinking) felt the need to tell the world that the US Treasury would run out of money by 18th October and therefore that the USA might not be able to pay its bills and thus could default on its debts. Subtlety is clearly not her strong suit either.

Her statement comes from the oft-used equity-market playbook of nonsense stories and, if nothing else, gives Edward Lear a good run for his money. However, one of the few advantages of advancing age is that one has seen and heard an awful lot of whoppers before but our political leaders don’t seem to believe that there are many people outside their political bubble who have the power of recall and who are not prepared to suspend disbelief or swallow fairy stories. When faced with dubious and politically based assertions my inner geek does tend to emerge.

Like Christmas, this pantomime comes around on a regular basis year after year and, to date, the USA has never yet defaulted. As in so many years past a last-minute fix (much in the style of Errol Flynn) will be found and salvation will be clutched from the gaping maw of Janet Yellen.

The first three weeks of October will see the release of third-quarter corporate financial reports. For those companies that currently comprise the portfolio holdings of the Quotidian Fund we anticipate a continuation of impressive performance figures and, if that indeed proves to be the case, then we expect the prices that have been artificially marked down in these past three days of short-term mayhem to be restored to their former glory.

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